Теоретичні та прикладні
питання економіки. Збірник наукових праць. Випуск 1/2 (40/41)
JEL D81, L21
DOI https://doi.org/10.17721/tppe.2020.40.3
Iryna Fedulova , D.Sc. (Economics), Professor at the
Department of Management,
Kyiv National Trade and
Economic University, Ukraine
Nataliia Skopenko,
D.Sc. (Economics), Professor
at the Department
of Labour Economics
and Management, National
University of Food Technologies, Ukraine
RISK APPETITE ASSESSMENT FRAMEWORK
The adoption of any managerial decision within the
company happens in the presence of risks. Against this background, it is vital
to determine whether the risk is acceptable for achieving the objectives.
In the article the essence of risk appetite, risk
tolerance and risk capacity is considered. Differences
between risk capacity, risk appetite and risk tolerance are defined. Risk
appetite reflects the level of losses that the company is willing to accept in
order to achieve its strategic objectives. In contrast, risk tolerance is
related to the acceptance of the outcomes of specific identified risk events
and is defined as readiness for certain risk event. Risk capacity is the
maximum level of risk that an organization is
able to accept for
achieving its business goals, taking
into account the current level of
resources, its capital structure and
access to markets.
An important part of identifying the risk appetite for
the company is a description of advantages and disadvantages of existing
methods of its assessment. Quantitative and qualitative approaches to
determining risk appetite are considered. In the first case, the absolute value
of possible risk or its relative value is established. In this case, the risk
appetite is determined depending on organizational objectives. These objectives
may determine the achievement of the planned financial indicators, compliance
with financial regulations and other indicators of the company. Qualitative
assessment of risk appetite is used when the risk cannot be quantified. In this
case, the risk appetite is presented in a descriptive way. It is
important to define the risk
appetite including all aspects of the enterprise activity in the context of certain strategic
goals of its development.
Breaching the risk tolerance threshold should serve as
a red alert for management. In such a case, it is
important to reduce
the risk position.
Keywords: risk, risk appetite, risk tolerance, risk capacity,
methods of risk appetite assessment.
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